2 Social Time Preference is defined as the value society attaches to present, as opposed to future, consumption. The Social Time Preference Rate (STPR) is a rate used for discounting future benefits and costs, and is based on comparisons of utility across different points in time or different generations. This guidance recommends that the STPR be used as the standard real discount rate.
3 The STPR has two components:
❑ The rate at which individuals discount future consumption over present consumption, on the assumption that no change in per capita consumption is expected, represented by ρ; and,
❑ An additional element, if per capita consumption is expected to grow over time, reflecting the fact that these circumstances imply future consumption will be plentiful relative to the current position and thus have lower marginal utility. This effect is represented by the product of the annual growth in per capita consumption (g) and the elasticity of marginal utility of consumption (ρ,) with respect to utility.
The STPR, represented by r, is the sum of these two components, i.e.
r = ρ + µ.g (1)
Each element of STPR is examined in turn below.